AUGUSTA (AP) – State auditor Gail Chase plans to tell legislators on Friday that she can’t find a paper or electronic trail for $19 million the state received from the federal Temporary Assistance to Needy Families program.

Chase, who is scheduled to appear before the Appropriations Committee, said the problem appears to have developed over five years as the Human Services Department disbursed TANF money for grants or programs for which they were not specifically authorized by the federal government.

“It’s very serious,” Chase told Maine Public Radio on Thursday. “When your auditors tell you they can not follow the trail, and the department says that they cannot find the trail, I think that’s very serious.”

Baldacci administration officials are concerned that the accounting problem, which became evident as Chase reviewed the state’s books for the fiscal year that ended last June, could jeopardize the state’s credit ratings on Wall Street.

Officials in the administration of Gov. John Baldacci, who are scheduled to meet with the rating agencies in late May, have been trying to track funds from the federal welfare program since the accounting problem surfaced last month.

State Finance Commissioner Rebecca Wyke said she expects Wall Street rating agencies to ask about the money.

“If we can’t find it by the time we have to close the financial statements, it will probably result in a qualification of the financial statements, which ultimately could hurt the bond rating,” Wyke said. “Obviously, we’re very concerned about that.”

Chase said she has found about $8.5 million in other spending, some of it for children’s health care, that might have come from the TANF allotment. But that still leaves another $10 million unaccounted for.

“It’s not that it has gone out in anyone’s purse or in anyone’s pocket,” Chase said. “The problem is when you can’t tell, and when the department can’t tell you, exactly which grants (go with) which expenditures, with which dollars.”

If the state is unable to account for the funds, they might have to be repaid to the federal government, creating yet another hole in the state budget, Chase said.

Wyke said Standard & Poors has already put the state on a “negative watch,” a precursor to a bond rating downgrade. It has nothing to do with the TANF accounting issue, but rather because Maine is squeezed between falling revenues and rising expenses.

The commissioner added that the administration has been moving toward implementing stiff accounting controls that would prevent such financial problems in the future. That effort will be part of plans for a merger of the state human services and mental health agencies.

AP-ES-05-08-03 2000EDT